When the latest B.C. budget dropped North America’s first true carbon tax in our laps, we were stunned and strangely silent. Even though the tax had been widely expected, its arrival was hard to believe. The tax is tiny today, but it will grow and will also bring a friend: the long-debated cap-and-trade system the Campbell government is building with select provinces and U.S. states is supposed to be designed by August.
If you’re doing business in B.C., where the first set of carbon emission rules is in place, the big question is: what are you going to do about it?
We brought three experts together to talk about what B.C.’s carbon-fighting schemes mean for business. James Tansey is an assistant professor at UBC’s Sauder School of Business and the co-founder and CEO of Offsetters Climate Neutral Society, a non-profit that helps organizations
reduce their carbon footprint. Chris Bataille is an adjunct professor with the School of Resource and Environmental Management at SFU and a principal at M.K. Jaccard and Associates, an environmental consulting firm that has worked closely with B.C. and federal government climate thinkers. Peter ter Weeme is a principal with the Vancouver-based sustainability consulting firm Junxion Strategy Inc.
One of the major issues for businesses today when it comes to climate change is the new government regulation. James, to start us off, what are the logics of these plans introduced by B.C.?
JAMES TANSEY: The carbon tax is really as much about educational change as it is about behavioural change. It’s a way of letting consumers know the extent that carbon is embedded in the choices that they make. But it’s not set at a high enough rate to enable great behavioural change. It may have a significant effect on major fuel users, like truck fleets for instance, so it sends a small signal through the system.
I think the cap-and-trade scheme sends a secondary signal right into the manufacturing base, the major users of energy who are more sensitive to marginal increases and energy costs. If it’s set at the right level and if it’s a robust system, then there will be strong incentives to reduce emissions.
How are these plans supposed to work if all goes well?
CHRIS BATAILLE: The carbon tax and the cap-and-trade system are essentially close cousins of one another. What they do is put a marginal price on emitting carbon into the atmosphere. With a cap-and-trade system, ideally what you’ll do is issue permits for how much you want to emit, and then you let the market decide who is going to do what emitting. So you issue these permits somehow, whether it’s by auction or according to previous recorded emissions, and then you let companies trade amongst each other to determine who gets to do the emitting and who does the reductions.
What has been the reaction to these ideas among businesses?
PETER TER WEEME: I think it’s been relatively muted, and I think people had expected a lot more of an uproar. I agree that the tax is not nearly high enough to really send a strong enough signal, but I think it’s the beginning of a series of measures that we’re easing the public into. I think the business community is kind of worried about where this might go now. What other taxes might be coming our way? Is this the thin edge of a big wedge? I think it is, quite frankly.
TANSEY: It’s also clear that the carbon tax has been set up to be revenue-neutral. So for Consumers there’s an offset within the tax system for the additional cost. That’s not going to be the case, as I understand it, for the cap-and-trade system and for the system that will be in place in 2010, where government ministries, universities, hospitals and Crown corporations have to be climate neutral. This will be a real cost to those organizations.
I’m involved in chairing the committee at UBC looking at greenhouse gas emissions and where the opportunities lie for reducing those. The operations guys are trying to work out what to do about their 50,000-tonne-a-year gas furnace and suddenly a whole bunch of alternatives start to look very appealing when there’s a fee of $25 a tonne for the emissions in 2010.
TER WEEME: One of the other things is that businesses like certainty and they like level playing fields. One of the challenges is, if every jurisdiction starts to do its own program and use different policy instruments, it makes it challenging as a business to try and figure out how to manage that and how to make good decisions in terms of investment and so on. There’s a desire to see some national solutions to these issues.
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How likely is that?
BATAILLE: It depends on what happens in the U.S. next year and on what administration comes in. There are several bills before Congress to impose fairly strict cap-and-trade systems. What happens next fall is going to set a lot of that agenda. It’s going to echo back through the United States and into Canada. We have a certain amount of control here; B.C. really is pace-setting at this point, in terms of climate-change policy in North America and in the world. But that’s not going to happen within the context of the greater North American economy as we move forward.
TANSEY: I really think the most striking thing about this is the pace at which policies have been set in the province. It’s almost unprecedented. I can’t think of a jurisdiction where there have been, without a couple of years of concentration or buildup, these kinds of shifts. It’s tough for the critics, because you’ve got to run to keep up.
BATAILLE: And the policies really do conform very well to good theoretical design for climate-change policy from almost any side of the spectrum in terms of putting a price on carbon, making a revenue and using that to reduce labour and corporate taxes. The devil’s going to be in the details, but that is really good quality policy design.
And just for perspective – with the current carbon tax of $10, and a planned 2012 carbon tax of $30: in the U.K., they are living with gasoline prices that are equivalent to about a $300 carbon tax on top of what we’re paying. And it hasn’t crushed the U.K. economy; it’s quite vibrant.
A lot of this depends on government, and government decisions depend on how much political capital they have. In the ’70s Jimmy Carter said the energy crisis was one of the biggest crises facing our generation, and then the recession of the early ’80s came and nobody could care less. What’s the chance of the political capital of climate change all of a sudden just vanishing?
BATAILLE: Well, you’ve got two things moving at once. You’ve got basically a huge increase in base energy prices underneath the whole climate-change agenda – and, frankly, the increase in energy prices overwhelms almost anybody’s imaginable climate policy even within the last five years or so. We’ve seen doublings and triplings in energy prices. Nobody has even possibly imagined that in terms of climate policy, or even thought of proposing that.
TER WEEME: You’re talking about $1.45-a-litre gas this summer?
TANSEY: When I first came to B.C. in the late ’90s, I remember seeing 39 cents a litre for gas. To put it in perspective, the carbon tax, even at its full rollout, will amount to seven cents a litre, which is the kind of volatility we see in prices between a weekday and the weekend. In some ways, there are scarcity effects that are driving the climate agenda and energy agenda as much as any definitive policy around climate change. The size of that signal coming into the system is sensitizing people to climate change.
Whatever the politics of climate change are, I think it’s pretty clear that those high oil and gas prices are here to stay. So those things also drive a good kind of policy and put us in a position to reduce emissions.
TER WEEME: I also think that the zeitgeist is different now than in the ’70s. The average citizen is a lot more aware of the depth of the environmental issues facing the planet, be it the collapse of the fisheries, the acidification of the oceans or the dying off of large coastal coral formations.
It’s a whole range of things that have happened over the last 20 years. I think it’s a very different place. A lot of what I do is track consumer expectations and behaviours around corporations and government and so on, and I don’t think there’s going to be a question of bad economic times coming along and everybody’s suddenly abandoning this.
I also think if the NDP were to replace the Liberals in this province, they would not repeal some of these environmental issues. I think that would be politically unwise.
For businesses that are seeing these changes happen, what do they do?
TER WEEME: Well, the thing you don’t do is throw up your hands and say it’s too complex and live in denial. We often advise people to start to wrap their mind around where the policy frameworks are going and what their carbon footprint looks like. And where are the areas of greatest impact and where’s the lowest-hanging fruit? Because regardless of whether carbon taxes increase or not, or whether there’s a cap-and-trade system in place, you have to understand what your carbon footprint is – both the direct emissions and indirect emissions that are associated with your business.
That raises another point: if the first step is getting an inventory of your carbon footprint – well, there are so many different ways of doing it. It can be confounding to business leaders. Where should they start?
TER WEEME: It’s very simple to calculate annual fuel use. You can get your gas and electricity very easily. And if you add those up, for most organizations, they can often be 70 or 80 per cent of the total emissions. Those are also the places where you can make the biggest difference quite quickly. And then there are a huge number of lists, you know, the top 10 things you can do for climate change: managing lighting, managing energy used on computers. We just tested a piece of software on campus over the last month that powers down PCs to basically the equivalent of a shutdown when the computer’s not being used. The energy used was 28 per cent of the energy used without the software, so a 72-per-cent reduction for a piece of software that costs three to six dollars to install.
So consumers can look to the websites that give that kind of advice, pick the kind of things that they want to do and probably start to see 10- to 20-per-cent reductions fairly quickly if they have a little bit of discipline.
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James TanseyNow it’s interesting that when you talk about those kinds of solutions, we’re talking about people really believing in this and considering it to be important.
TER WEEME: That’s one of the first preconditions to any kind of behaviour change: people acknowledging that there’s a problem. One of the challenges with climate change is people are confused. There’s a great deal of misinformation and they don’t really know, even to this day, exactly what climate change is and how is it caused.
And I think the other thing is redefining what quality of life means. You can’t sell people a hair shirt. Nobody wants to buy sacrifice and a sense that future life is going to be less fulfilling than it is now. So I think part of what we also have to do is reframe how a carbon-constrained future can be congruent with a great quality of life – because it can be.
Business does this very successfully, sort of a reductionist approach: this is going to cost us money, so we’re not going to do it. Whereas other businesses say, “You know what? There’s an opportunity here. If we reduce our carbon footprint, we can sell these credits to somebody else, we can make money from this.”
What do you tell businesses to convince them to take a step forward on this?
TANSEY: Companies that are aware and consumer-driven will identify opportunities where being proactive around climate policy will capture market share, and some of that expenditure will just come out of their marketing budget rather than out of their infrastructure budget.
The overall drive beyond the early adopters is going to be this slow penetration of price signals when people start to see the increase of the cost of their energy. Yeah, it’s going to take five years for some of the businesses, or 10 years for others, to really respond to the signals. That’s my sense.
BATAILLE: At M.K. Jaccard we’ve been getting feelers and doing projects for various firms who want briefings on where climate change policies are going to go. They want education; they want some strategic recognizance. There is knowledge that there is something coming down the line.
TER WEEME: I think the notion around efficiency, productivity and so on resonates with businesspeople because, in a lot of cases, when you do a carbon footprint analysis there’s an efficiency: you’re flying people too often, you’re not ganging your courier deliveries, you don’t have good travel policies internally and a range of things like that. It becomes an opportunity to say to businesspeople, “Look, we’re going to help you run your business better, more efficiently.” So that obviously resonates with people. But a moral appeal doesn’t work.
We mentioned that B.C. is in the lead here and we don’t have a national strategy on this or a North American strategy on this. What is the danger to our economy? Are we in a vulnerable position by being first?
BATAILLE: With the carbon charges we’re proposing – no, they’re just not sufficient. We’ve looked at really serious and deep reductions, and we’re talking reductions of 45 per cent and 65 per cent. Over the long haul it looks like that might cost two to three per cent of GDP in transition, and then we go back to our original growth path. It’s a matter of readjusting the infrastructure, but the trick to that is adjusting gradually.
What the low carbon charges the B.C. government has brought out do allow is that initial warning signal, a shot across the bow: you’ve got to start adjusting your consumption decisions; you’ve got to start adjusting investment decisions and taking carbon into account. Those carbon prices will gradually come up, and if it’s in pace with capital stock turnover – when you’re replacing cars, houses, industrial machinery, what have you – the marginal cost is not that much.
So if we hear warnings that this is going to cost us X thousands of jobs . . .
TER WEEME: It’s fear mongering.
TANSEY: We’ve already done the experiment on one of the fundamental cost factors of the economy, which is oil. We’ve doubled or tripled the price of oil in the last five years, and people have studied what the impact has been on economic growth. It’s hard to trace out, but it’s well under two per cent – some people say half a per cent.
What we may see happen is it might be the straw that breaks the camel’s back on some sectors, such as auto manufacturing in North America. But that’s an industry that’s been borderline bankrupt for the last five or 10 years already, for a whole bunch of other factors. So the real danger there is the straw gets blamed for breaking the camel. The danger is somebody will blame the collapse of a car company on these kinds of policies.
BATAILLE: Canada has industrialized on a fairly intensive path based on very low energy prices. Now that’s going to have to change, so there’s going to be a bunch of industries that reflect that previous time. They’re going to suffer more. But that’s a few focused industries that, to be honest, don’t represent a huge amount of GDP or a huge amount of jobs.
TER WEEME: Personally, I don’t think there’s a huge amount of risk for B.C. to be the leader. I think, if anything, it helps us establish where this needs to go, and ultimately I think provinces like Alberta are going to find themselves the pariah. The concern I have about that is how they react. They may just dig in their heels, or maybe they’ll slowly come around.
BATAILLE: Just talking to people who do this around the world, and reading other studies, people should not be surprised if within a generation or so we’re looking at $100 or $200 a tonne for carbon. This is not going away – it’s just going to keep coming up.
TER WEEME: The good thing is there are lots of resources available, be they online, consulting resources, non-profits – a whole range of organizations that can help you wrap your mind around what the right choices are. For businesses, they have to find what the competitive advantage is in addressing some of these issues, and I think consumers also have to reconsider what quality of life means and how they can find satisfaction in a carbon-constrained future. These are not necessarily conflicting goals. I think we’re going to have to work on reframing some of the things we value in this society.